Before filing a tax return with a taxing authority, a tax entity (e.g., an individual, business, or organization subject to taxation) may receive tax information to be reported on the tax return. For example, the tax entity may receive a wage and tax statement from an employer or a statement of interest income from a financial institution (e.g., a bank, investment firm, or any other appropriate financial institution). One or more of the received forms may contain tax information, such as annual income earned and/or amount of taxes withheld, that may need to be reported on the tax return. A user, such as the tax entity or a tax preparer preparing a tax return on behalf of the tax entity, may utilize the tax information to complete a tax return (e.g. via a tax preparation application) and file it with a taxing authority (e.g., IRS, state authority, local authority, foreign authority). In addition to the information received from third parties, the user may also use other information of the tax entity such as an identification number (e.g., Social Security Number or Employer Identification Number), dependent information, tax deduction information, or any other information that might be useful for the completion of a tax return.
A taxing authority may receive tax entity information corresponding to a tax entity form one or more sources. For example, one or more third parties may send to the taxing authority tax information that pertains to a specific tax entity. Typically, the information that the taxing authority receives from third parties for a particular tax entity correlates to the information that the particular tax entity receives from the third parties. A taxing authority may require that the third parties that send tax information to tax entities also send corresponding tax information to the taxing authority. In addition to the information received from third parties, the taxing authority may also have (or have access to) additional records that pertain to specific tax entities. For example, the taxing authority may have access to a database of identification numbers (e.g., Social Security Numbers or Employer Identification Numbers) for specific tax entities.
The taxing authority may use the tax information received from third parties as well as additional records to verify information reported on a tax entity's tax return. When the taxing authority receives a tax return from the tax entity, the taxing authority may verify some of the information of the tax return with information received, for example, from the tax entity's employer(s). For instance, if the tax entity's tax return indicates the tax entity earned $50,000 for a specific time period and the employer(s) reports the tax entity earned $51,000 during that time period, the taxing authority may determine that a discrepancy exists between the information of the tax return and the information submitted by the tax entity's employer(s). This type of error may occur for various reasons. For example, the tax entity may have forgotten to report income from a secondary income source such as an interest earning bank account or part-time job. In other cases, the tax entity may not have received documents pertaining to income earned and thus failed to report the correct amount of income in the tax return.
Typically, when an error is detected by the taxing authority, the taxing authority may notify the tax entity that an error requiring correction has been detected. In some cases, the tax entity may be required to pay additional taxes to the taxing authority as a result of correcting the errors. It may be desirable to detect the error(s) before the tax entity submits the tax return to the taxing authority. Tax entities, tax preparers, and/or tax preparation applications (e.g., applications that create tax returns for tax entities based on tax information provided by the tax entities) may detect some types of errors within tax returns. However, many types of tax return errors, such as the errors and discrepancies described above, are not detected before filing the tax return with a taxing authority.